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2011 Bakken Review: Part 1

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The Bakken shale play has been the subject of much hype for the better part of 2011. Touted as the single largest oil find in U.S. history, this region witnessed several companies lining up to exploit its reserves. Companies that couldn't invest in acreage simply bought into companies with established bases there -- the most prominent being Statoil (NYSE: STO  ) taking over Brigham Exploration.

The question that needs to be answered
Several companies are currently developing their properties, with some even commencing production. The question that really needs to be answered is this: Are the wells in Bakken living up to the hype in terms of output and touted reserves? The turn of the year is the best time to answer this question. What really matters to the investor is whether these wells are capable of giving returns that are worth the investment.

There are several wells whose initial production, or IP, rates are fantastic, i.e. flow rates in the first 24 hours once the well becomes operational. However, it'd be wise not to get carried away by those figures. While IP rates are high, so are the initial rates of decline. This is especially true for shale formations where the virgin reservoir may exhibit high well pressures initially, only to decline and level off output at a much lower rate.

To calculate daily production, the wisest approach is to wait for three to six months before estimating an average value. If the data aren't available for such a period, then the next lowest period available should be considered. In any case, average daily flow rates shouldn't be calculated using a period that is less than 30 days. Today we'll check out three companies operating in the Bakken.

Kodiak Oil & Gas (NYSE: KOG  ) has been a revelation this year. Its wells have been producing at a decent rate. In Dunn County, the company has two wells -- MC #13-34-28-1H and MC #13-34-28-2H -- producing at 1,074 barrels of oil equivalent/day (BOE/d) when calculated for the 60-day period. The TSB #14-21-33-15H produced at 790 BOE/d. These wells have been the backbone of Kodiak's production this year. Another couple of wells in the same county have been producing at an average of 450 BOE/d.

A couple of new wells, which were completed last September, have shown promise. Their 30-day average daily output stood at 1,449 BOE and 1,398, respectively. Bakken's Dunn County has been playing true to potential for Kodiak.

McKenzie County also ensured some fantastic production for Kodiak. The four Koala wells that were completed this year have a 60-day average daily output of 1,116 BOE -- again phenomenal. Three more Koala wells are due for completion in the fourth quarter this year. Eighteen additional wells are due for completion in 2012.

For EOG Resources (NYSE: EOG  ) , the Liberty LR #21-36H in the Williston Basin had a maximum flow rate of 1,201 BOE/d. The Fertile #19-29H and #45-29H in Mountrail County had IP rates of 1,008 and 1,223 BOE/d, respectively. I wouldn't call this impressive, compared to Kodiak's wells. After leveling off, these wells might produce at only 50% of their maximum rates.

The company's Hardscrabble 13-3526H in Williams County had an IP rate of 1,474 BOE/d, while the Clarks Creek 3-0805H in McKenzie County had an IP rate of 1,384 BOE/d. Investors need to realize that actual average daily production will be much less than these values.

Triangle Petroleum (AMEX: TPLM  ) has been involved in the Bakken as a nonoperating partner. Its interest in McKenzie County via Newfield Exploration's (NYSE: NFX  ) Holm 150‐99‐13‐24‐1H and Staal 150‐99‐23‐14‐1H is impressive. The IP rates have been 2,370 and 3,034 BOE/d, respectively. In Dunn and Williams counties, Triangle has a working interest through Hess' (NYSE: HES  ) Kostelank 28‐1H and Hodenfield 15‐33H, respectively. The 24-hour IP rates stand at 1,040 and 2,080 BOE/d. Again, investors should keep in mind that actual daily production averages would be around 50% of these values.

Foolish bottom line
All in all, the Bakken has been looking impressive in 2011. In the next article, we shall check out some more companies operating in this shale play. If you're looking for more ideas, The Motley Fool has created a new special oil report titled "3 Stocks for $100 Oil," which you can download today, absolutely free. In this report, Fool analysts cover three outstanding oil companies. To get instant access to the names of the three oil stocks, click here -- it's free.

Fool contributor Isac Simon does not own shares of any of the companies mentioned in this article. Motley Fool newsletter services have recommended buying shares of Statoil A. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Read/Post Comments (3) | Recommend This Article (10)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On December 28, 2011, at 6:04 PM, Oilytexan wrote:

    Chesapeake Exploration has a huge foothold in the southern part of the Williston Basin in Stark and adjoining Counties. 400,000-500,000 acres. This play will turnout to be the best one they are in to date. They will have over 30 rigs running in this part of the basin probably by year end in 2013. When they drill a Red River horizontal test in Stark , they will be drilling a lot in this formation as well as the Three Forks and Bakken formations. This area has 6 major formations that produce oil and gas. 5,000bbls/acre recovery per well on 160 acres is 800,000 bbls on the high side of calculations per formation. They have a goldmine for sure in this basin.

  • Report this Comment On December 29, 2011, at 6:08 AM, clbjblk wrote:

    PBKEF,GSFVF,PDPYF,FCGYF, STILL TIME FOR KOG,SD,SSN,AXAS,USEG,ROYL, GO IRAN BLOCK THE TANKERS.I think if you had a nuke you would have already put it on our Drone and see if it could go fast cause it won't be long and we will have our own black gold.History in the making as soon as they figure out who is going to live in white house or KENYA or is KENYA really THE hula dance island.

  • Report this Comment On August 27, 2012, at 2:39 PM, mitchjl wrote:

    You sound like another Right wing Conservative Repiglican "BIRTHER", or another Donald Trump. "GET REAL"!

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